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Marketing Strategy

Marketing Strategy

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Published by: Ose Ehichioya Ojeabulu on Oct 23, 2011
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05/16/2013

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Perhaps it is to state the obvious to say experience and ability to
create value are closely linked and a major factor in successful
marketing strategy. In considering these factors, two useful models are
presented here.

The experience curve denotes a pattern of decreasing cost as a
result of cumulative experience of carrying out an activity or function.
Essentially, it shows how learning effects (repetition and accumulated
knowledge) can be combined with volume effects (economy of scale)
to derive optimum benefits (see Figure 8.7). With experience, the
organization should produce better and lower cost products. The
main influence of experience effects has been to promote a high
volume/low cost philosophy aiming at a reduction in unit cost.
However, in today’s competitive business world, organizations cannot
simply rely on a ‘big is beautiful’ strategy based on economy of scale
and market share. It is vital to recognize the importance of learning
effects on factors such as product quality and service levels. Such
factors hold the key to future success and greatly influence the ability
to‘add value’ to product offerings.
Eventually, cost and learning effects will display diminishing
returns and an optimum level is reached. However, the process never
stops. The advent of new technologies may mark a shift in experience
and offer new challenges. For example, the large monolithic market
leader could be in danger as newer, more forward-thinking com-

Figure 8.7Experience curve

Firm’s infrastructure

Technologydevelopment

Human resourcemanagement

Procurement

In-bound
logistics Operations Out-bound
logistics

Marketing
and sales Service

Margin
of value

Secondary activities

Primary activities

154Strategic Marketing

petitors readily embrace new technology and the subsequent benefits
it brings to today’s business environment.
The concept of a value chain, developed by Porter (1980), cate-
gorizes the organization as a series of processes generating value for
customers and other stakeholders. By examining each value-creating
activity, it is possible to identify sources of potential cost leadership
and differentiation.
The value chain (Figure 8.8) splits activities into: (i) primary
activities
– in-bound logistics, operations, outward logistics, market-
ing/sales and service, and (ii) secondary activities– infrastructure,
human resource management, technology development and procure-
ment. These secondary activities take place in order to support the
primary activities. For example, the firm’s infrastructure (e.g. manage-
ment, finance and buildings) serves to support the five primary
functions. While each activity generates ‘value’, the linkages between
the activities are critical. Consider the interface between in-bound
logistics and operations. A just-in-time logistics system, supported by
computerized stock ordering (technology development – secondary
activity) could reduce stock costs and enhance the quality of products
manufactured in the operations phase of the chain, thus enhancing the
overall value generated by the process. The value generated is shown
as the ‘margin of value’ in Figure 8.8.
The value chain provides an additional framework to analyse
competitive advantage. It helps identify the key skills, processes and
linkages required to generate success. Additionally, the concept can
link organizations together. A series of value chains can be analysed
as one overall process. For example, the value chains of a component
manufacturer and equipment manufacturer could be merged into one
system, with common support activities. This could have the effect of

Figure 8.8The value chain (Source: Porter, 1980)

Strategy formulation155

reducing overall costs and improving co-ordination between the
companies.

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